Implementing operational, financial improvements

With more than 12,000 inmates in 4,400 facilities and another 8,000 people under other forms of supervision, the Danish Prison and Probation Service (DPPS) carries out judicial sentences and helps rehabilitate offenders. DPPS’ value lies in "the art of balancing punishment and care."

An enterprise of this scale presents operating and financial challenges as well as many questions. Gaining a clear economic overview is difficult in an organization with a budget of DKK 3 billion (US$525 million). Executives need answers to strategic questions such as: Would a reduction in the number of facilities lower overall costs? Which prisons are finding new ways to save and how are they doing it? What does it cost to offer special facilities for female inmates, high-risk prisoners and other special groups? Inmates can work with crafts, manufacturing or agriculture – but what are the costs associated with each activity?

SAS consultants delivered a prototype within a week, and it lived up to our expectations. It was clear that SAS could do the job.

Peter Schultz-Nielsen
Senior Consultant

Embracing activity-based costing

To answers these and other questions, DPPS created a pilot project in cooperation with SAS. A round of consultation with PA Consulting identified that activity-based costing would be the right methodology to drive the institution's operations. To automate this initiative, the DPPS selected SAS® Cost and Profitability Management – an analytic application that models business processes to determine cost, profitability and cost drivers.

"SAS consultants delivered a prototype within a week, and it lived up to our expectations," said Peter Schultz-Nielsen, Senior Consultant for DPPS. "It was clear that SAS could do the job."

The development work was carried out with involvement from the actual penal institutions, to ensure that the ABC system was appropriate. Employees at the resource management office worked with SAS consultants to build the model with the primary task of mapping all the costs from the financial system to the SAS Cost and Profitability Management solution.

"We had some talented, hard-working consultants from SAS," Schultz-Nielsen said. "Typically, we are not keen on consultants, but the SAS people proved their value to us. SAS was a professional partner and we liked the fact that they incorporate appropriate external domain knowledge and are not only concerned with their own IT tools."

Mission: efficiency

The thrust of the ABC initiative, driven by SAS Cost and Profitability Management, is to allocate all costs to all line items needed to measure and manage institutional operations. This way DPPS can see what it costs to provide electronic tagging, a holding cell or a secure prison for an offender. The directorate found that DKK 972 million went to "controls and security," and DKK 888 million (US$156 million) went to "support and motivation," important activity categories that could not previously be measured. The ABC system that's driven by SAS distributes costs to primary activities and shows the costs across the institutions. It also displays unit activity costs by individual institution.

"Our goal is to operate DPPS as efficiently as possible," said Ole Hansen, Deputy Director. "We have chosen to invest time, money and focus on this ABC project. Now we can report, for example, the total annual costs of the Directorate's primary tasks and objectives. We attach great importance to the demands of the Ministry of Finance and the National Audit Office, and ABC provides ample details to meet these demands for transparency and accountability."

"First and foremost, the project strengthens the financial management of our institutions. The ABC project is about management, organization and process," explained Schultz-Nielsen, whose office is responsible for budget, financial management, capacity planning and occupancy.

ABC in negotiation

DPPS established contracts with the individual state prisons, and the new financial insights from the ABC system are factored into annual contract negotiations with prison inspectors and institutional financial functions.

"We have dual roles as supervisor and supplier of financial management tools," said Schultz-Nielsen, who added that the system allows them to compare institutions and enhance best practices throughout DPPS. "We offer a great degree of freedom and look at the whole picture rather than just hard numbers. The ABC system is part of an ongoing dialogue since the insights can point to improvements."

The innovation of the ABC system creates financial visibility into the costs of buildings and salaries, which account for 75 percent of the agency’s annual costs. The system also allows DPPS to meet new cost-reform targets, because ABC figures have the desired level of detail. Moving forward, DPPS plans to develop the ABC solution further, by adding more functionality and users. This could include new analysis and performance indicators that the agency can build with SAS Cost and Profitability Management.

Challenge

The agency overseeing the Danish prison system wanted a better understanding of the underlying relationships and costs of its resources and facilities.

Solution

Benefits

SAS Cost and Profitability Management provides a model for cost relationships and new insight into finances – including the possibility of implementing a wide range of operational and financial improvements.